Recessionary Signals: Opportunities in the Market

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  • 04 mins 40 secs
MFS' Brad Rutan discusses sectors of the market that look attractive given cheap valuations and solid fundamentals.

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MFS Investment Management

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Title: Recessionary Signals: Opportunities in the Market
Abstract: MFS' Brad Rutan discusses sectors of the market that look attractive given cheap valuations and solid fundamentals.

Thank you everyone for taking the time to join us today. So I am here in my home office, social distancing myself with Brad Rutan, who's joining us, who's Managing Director and Head of Global Product of Fixed Income.

So you're seeing every single day, stores are shutting down, large stores, small stores. Who's going to survive out of this? Who are going to be the winners? What asset classes are going to be the winners, and who do you think will have a hard time coming back?

I mean, I honestly think every asset class has the opportunity to come out of this, every sector. There's no reason why it wouldn't. We're going to see a broad-based, massive recovery once all this fiscal and monetary stimulus flows through the system and we get past peak cases. But that being said, not every company and every sector or asset class is going to survive. What crisis do, is crises kill bad companies. Good companies survive them and then great companies improve by them.

So we're going through each sector one by one, making shopping lists to figure out who is going to make it through this, who's going to survive, how long is it going to take them, and then will they improve on the back of this crisis? Those are the companies we want to be buying right now as valuations become cheaper and cheaper.

 

So can you talk to me a little bit more about munis? It seems that they're getting hit, but it seems like they're getting hit unfairly. Would you agree with that? What's happening?

Well, we just got a backup in prices, or prices got a lot cheaper on munis. The entire municipal yield curve, as of yesterday, was above the Treasury curve. Meaning you're getting a higher yield to own a muni with the same maturity as the US Treasury, and that's historic. So will munis continue to lose money? Maybe. But I think from a starting point, when you're buying a muni at 150% ratio to a treasury, it just to us, might offer some good potential return for the future.

…Munis are a retail-owned asset class like no other asset class out there. It is owned primarily by retail investors. So you don't have that steadiness of the institutional pool of assets in it, and when retail investors get skittish and all run for the exit at once, you see liquidity dry up quickly in the mean market.

So this isn't new, but what we do know is eventually we'll find a floor. You'll see crossover buyers come over from taxable funds because again, why not buy a muni with a higher yield than the Treasury, and you'll start to find a floor.

So, what's your opinion on emerging markets?

I think emerging markets, they obviously offer some opportunity. Would I want to own a product that owned every single emerging market, country, those countries with the lowest health scores on the planet? No, absolutely not. I think as this conversation of de-globalization happens, taking the global supply chain and maybe making it more localized happens, there will be emerging market countries that win, and there's going to be emerging market countries that lose, as potentially the supply chain shifts. I think that's where you need to do your research and find out what's the future of these countries and should we invest in them? But there's definitely going to be great opportunity in emerging markets, both debt and equity.

There are people who want to hide. So where would you go if you wanted to hide?

As far as where I would hide out, I mean I think, in my opinion, if I was looking to avoid interest rate risk and credit risk, so kind of take those off the table, investment grade, short duration products are probably one of the areas that might have the ability to withstand the next couple of months or weeks. But in reality, what I really want to do now, is have a fund that can lean into high yield, that can lean into emerging market debt and corporate paper, when these things sell off. And yes, maybe lose for the next couple of weeks. But set yourself up to take advantage of these higher spreads and higher yields so that next year, possibly, you have a much better return.

Thank you, Brad. I appreciate you spending time with us. It's always great to hear your insight. Thanks so much.

The views expressed are those of the speaker and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor.

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